Life Insurance

What Should I Know about Beneficiary Designations?

A designated beneficiary is named on a life insurance policy or some type of investment account as the designated recipient of those assets, in the event of the account holder’s death. The beneficiary designation doesn’t replace a signed will but takes precedence over any instructions about these accounts in a will. If the decedent doesn’t have a will, the beneficiary may see a long delay in the probate court.

If you’ve done your estate planning, most likely you’ve spent a fair amount of time on the creation of your will. You’ve discussed the terms with an established estate planning attorney and reviewed the document before signing it.

FEDweek’s recent article entitled “Customizing Your Beneficiary Designations” points out, however, that with your IRA, you probably spent far less time planning for its ultimate disposition.

The bank, brokerage firm, or mutual fund company that acts as custodian undoubtedly has a standard beneficiary designation form. It is likely that you took only a moment or two to write in the name of your spouse or the names of your children.

A beneficiary designation on account, like an IRA, gives instructions on how your assets will be distributed upon your death.

If you have only a tiny sum in your IRA, a cursory treatment might make sense. Therefore, you could consider preparing the customized beneficiary designation form from the bank or company.

You can address various possibilities with this form, such as the scenario where your beneficiary predeceases you, or she becomes incompetent. Another circumstance to address, is if you and your beneficiary die in the same accident.

These situations aren’t fun to think about but they’re the issues usually covered in a will. Therefore, they should be addressed, if a sizeable IRA is at stake.

After this form has been drafted to your liking, deliver at least two copies to your custodian. Request that one be signed and dated by an official at the firm and returned to you. The other copy can be kept by the custodian.

Reference: FEDweek (Dec. 26, 2019) “Customizing Your Beneficiary Designations”

Preparing for the Inevitable: The Loss of a Spouse

Becoming a widow or widower at a relatively young age puts many people in a tough financial position, says the article “Preparing for the Unexpected Death of a Spouse” from Next Avenue. At this point in their lives, they are too young to draw Social Security benefits. There is no best time to lose your spouse, but this is a particularly hard time.

Women are more likely than men to lose a spouse, and they are typically left in a worse financial position than if their spouse dies before they are old enough to take retirement benefits.

One of the best ways to plan for this event, is for both spouses to have life insurance. This can replace income, and term life insurance, if purchased early in life, can be relatively affordable. The earlier a policy is purchased, the better. This can become a safety net to pay bills and maintain a lifestyle.

Another key component for surviving early widowhood, is being sure that both spouses understand the couple’s finances, including how household bills are paid. Usually what happens is that one person takes over the finances, and the other is left hoping that things are being done properly. That also includes knowing the accounts, the log in and password information and what bills need to be paid at what dates.

Having that conversation with a spouse is not easy, but necessary. There are costs that you may not be aware of, without a thorough knowledge of how the household works. For instance, if the husband has done all of the repairs around the house, maintaining the yard and taking care of the cars, those tasks still need to be done. Either the widow will become proficient or will have to pay others.

Couples should work with an estate planning attorney and a financial advisor, as well as an accountant, to be sure that they are prepared for the unexpected. What survivor’s benefits might the surviving spouse be eligible to receive? If there are children at home age 16 or under, there may be Social Security benefits available for the child’s support.

Discuss what debt, if any, either spouse has taken on without the other’s knowledge. Any outstanding medical bills should also be discussed. The last thing a loved one should have to cope with when a spouse passes, is a tangle of debt. However, this often happens.

If the spouse was a veteran, the surviving spouse might be eligible for benefits from the Veterans Administration. Find out what information will be needed to apply for benefits.

Talk with your estate planning attorney to make sure that all proper documents have been prepared. This includes a last will and testament, power of attorney, health care proxy and any trusts.

Reference: Next Avenue (Dec. 18, 2019) “Preparing for the Unexpected Death of a Spouse”

How Do I Avoid Unintentionally Disinheriting a Family Member?

When an account owner dies, their assets go directly to beneficiaries named on the account. This bypasses and overrides the will or trust. Therefore, you should use care in coordinating your overall estate plan. You don’t want the wrong person ending up with the financial benefits.

The News-Enterprise recent article, “Don’t accidentally leave your estate to the wrong person,” tells the story of the widower who remarried after the death of his first wife. Because he didn’t change his IRA beneficiary form, at his death, his second wife was left out. She received no money from the IRA, and the retirement money went to his first wife, the named beneficiary.

Many types of accounts have beneficiary forms, like U.S. savings bonds, bank accounts, certificates of deposit that can be made payable on death, investment accounts that are set-up as transfer on death, life insurance, annuities and retirement accounts.

Remember that beneficiary designations don’t carry over, when you roll your 401(k) to a new plan or IRA.

You can name as your beneficiaries individuals, trusts, charities, organizations, your estate, or no one at all. You can name groups, like “all my living grandchildren who survive me.” However, be certain that the beneficiary form lets you to pass assets “per stirpes,” meaning, equally among the branches of your family. For example, say you’re leaving your life insurance to your four children. One predeceases you. Without the “per stirpes” clause, the remaining three remaining children would divide the death proceeds. With the “per stirpes” clause, the deceased child’s share would pass to the late child’s children (your grandchildren).

Don’t leave assets to minors outright, because it creates the process of having a court appointed guardian care for the assets, until the age of 18 in most states. Instead, you might create trusts for the minor heirs, have the trust as the beneficiary of the assets, and then have the trust pay the money to heirs over time, after they have reached legal age or another milestone.

You should also not name disabled individuals as beneficiaries, because it can cause them to lose their government benefits. Instead, ask your attorney about creating a special needs or supplemental needs trust. This preserves their ability to continue to receive the government benefits.

Reference: The News-Enterprise (November 30, 2019) “Don’t accidentally leave your estate to the wrong person”

What Estate Planning Do I Need With a New Baby?

Congratulations, you’re a new mom or dad. There’s a lot to think about, and there is one vital task that should be a priority. That is making an estate plan. People usually don’t worry about estate planning, when they’re young, healthy and starting a new family. However, your new baby is depending on you to make decisions that will set him or her up for a secure future.

What estate planning do I need with a new baby
Having an estate plan is the only way to legally name a guardian for your child.

Motley Fool’s recent article, “If You’re a New Parent, Take These 4 Estate Planning Steps” says there are a few key estate planning steps that every parent should take to make certain they’ve protected their child, no matter what the future holds.

  1. Purchase Life Insurance. If a parent passes away, life insurance will make sure there are funds available for the other spouse to keep providing for the children. If both parents pass away, life insurance can be used to raise the child or to fund the cost of college. For most parents, term life insurance is used because the premiums are affordable, and the coverage will be in effect long enough for your child to grow to an adult.
  2. Draft a Will and Name a Guardian for your Children. For parents of minor children, the most important reason to make a will, is to name a guardian for your children. When you designate a guardian, select a person who shares your values and who will do a good job raising your children. By being proactive and naming a guardian to raise your children, it’s not left to a judge to make that selection. Do this as soon as your children are born.
  3. Update Beneficiaries. Your will should say what happens to most of your assets, but you probably have some accounts with a designated beneficiary, like a 401(k), and IRA, or life insurance. When you have children, you’ll need to update the beneficiaries on these accounts for your children to inherit these assets as secondary beneficiaries, so they will inherit them in the event of your and your spouse’s passing.
  4. Look at a Trust. If you pass away prior to your children turning 18, they can’t directly take control of any inheritance you leave for them. This means that a judge may need to appoint someone to manage assets that you leave to your child. Your child could also wind up inheriting a lot of money and property free and clear at age 18. To have more control, like who will manage assets, how your money and property should be used for your children and when your children should directly receive a transfer of wealth, ask your estate planning attorney about creating a trust. With a trust, you can designate an individual who will manage money on behalf of your children and provide instructions for how the trustee can use the money to help care for your children, as they age. You can also create conditions on your children receiving a direct transfer of assets, such as requiring your children to reach age 21 or requiring them to use the money to cover college costs. Trusts are for anyone who wants more control over how their property will help their children, after they’ve passed away.

When you have a new baby, working on your estate planning probably isn’t a big priority. However, it’s worth taking the time to talk to an attorney for the security of knowing your bundle of joy can still be provided for, in the event that the worst happens to you.

Reference: Motley Fool (September 28, 2019) “If You’re a New Parent, Take These 4 Estate Planning Steps”

Planning for the Unexpected

Sadly, this is not an unusual situation. The daughter spoke with her mother once or twice a week, and the fall happened just after their last conversation. She dropped what she was doing and drove to the hospital, according to the article “Parents” in BusinessWest.com. At the hospital, she was worried that her mother was suffering from more than fractures, as her mother was disoriented because of the pain medications.  She had no idea whether her mother had done any planning for unexpected events such as this.

planning for the unexpected
Without taking time to plan for unexpected events, things can get complicated…quick.

The conversation with her brother and mother about why she wasn’t notified immediately was frustrating. They “didn’t want to worry her.” She was worried, and not just about her mother’s well-being, but about her finances, and whether any plans were in place for this situation.

Her brother was a retired comptroller, and she thought that as a former financial professional, he would have taken care of everything. That was not the case.

Despite his professional career, the brother had never had “the talk” with his mother about money. No one knew if she had an estate plan, and if she did, where the documents were located.

All too often, families discover during an emergency that no planning for unexpected events has taken place.

The conversation took place in the hospital, when the siblings learned that documents had never been updated after their father had passed—more than 20 years earlier! The attorney who prepared the documents had retired long ago. Where the original estate planning documents were, mom had no idea.

For this family, the story had a happy ending. Once the mother got out of the hospital, the family made an appointment to meet with an estate planning attorney to get all of her estate planning completed. In addition, the family updated beneficiaries on life insurance and retirement accounts, which are now set to avoid probate.

Both siblings have a list of their mother’s assets, account numbers, credit card information and what’s more, they are tracking the accounts to ensure that any sort of questionable transactions are reviewed quickly. They finally have a clear picture of their mother’s expenses, assets and income.

If your family’s situation is closer to the start of the story than the end, it’s time to contact a qualified estate planning attorney who is licensed to practice in your state and have all the necessary preparation done. Don’t wait until you’re uncovering family mysteries in the hospital.

Reference: BusinessWest.com (Aug. 1, 2019) “Parents”

Estate Planning is a Necessity for Small Business Owners

Just as the small business owner must plan for their own personal estate to be passed onto the next generation, they must also plan for the future of their business. This is why your estate plan needs to comprehensively address both you personal life and your business, says grbj.com’s recent article “Estate planning for small businesses.”  

Estate Planning for Business Owners
A succession plan for your business should be included in your estate plan.

Here are the basic estate planning strategies you’ll need as a small business owner:

A will. A last will and testament allows you to name someone who will receive your assets, including your business, when you die. If you don’t have a will, you leave your heirs a series of problems, expenses and stress. In the absence of a will, everything you’ve worked to attain will be distributed depending on the laws of the state. That includes your assets as well as your business. It’s far better to have a will, so you make these decisions instead of leaving it to the state laws.

A Living Trust. A living trust is similar to a will in that it allows you to name who will receive your assets when you die. However, there are certain advantages to having a trust. For one thing, a trust is a private document, and assets controlled by the trust can bypass probate. Assets controlled by a will must first go through probate, which is a public proceeding. If you’ve ever had a family member die and wonder why all those companies seemed to know that your loved one had passed, it’s because they get the information that is available to the public.

If your business is owned by a trust, the transition of ownership to your intended beneficiaries can be a much smoother process.

A financial durable power of attorney. This document lets you appoint an agent to act on your behalf, if you are incapacitated by illness or injury. This is a powerful legal document, so take the time to consider who you want to give this power to. Your agent can manage your finances, pay your bills and manage the day-to-day operations of your business.

A succession plan. Here is where many small business owners fall short in their planning. It takes a long time to create a succession plan for a business. Sometimes a buy-out agreement is part of a succession plan, or a partner in the business or key employee wishes to become the new owner. If a family member wishes to take over the business, will they inherit your entire ownership interest, or will there be a payment required? Will more than one family member take over the business? If a non-family member is going to take over the business, you’ll need an agreement documenting the obligation to purchase the business and the terms of the purchase.

If you would prefer to have the business sold upon your death, you’ll need to plan for that in advance so that family members will be able to receive the best possible price.

A buy-sell agreement. If you are not the sole owner, it’s important that you have a buy-sell agreement with your partners. This agreement requires your ownership interest to be purchased by the business or other owners, if and when a triggering event occurs, like death or disability. This document must set forth how the value of ownership interest is to be determined and how it is to be paid to your family. Without this kind of document, your ownership interest in the business will pass to your spouse or other family members. If that is not your intention, you’ll need to do prior planning.

The right type of life insurance. This is an important part of planning for the future for the small business owner. The death benefit may be needed to provide income to the family, until a business is sold, if that is the ultimate goal. If a family member takes over the business, proceeds from the life insurance policy may be needed to cover payroll or other expenses, until the business gets going under new leadership. Life insurance proceeds may also be used to buy out the other partners in the business.

Failing to plan through the use of basic estate planning and succession planning can create significant costs and stress for a small business owner. An experienced estate planning attorney can review the strategies and documents that are appropriate for your situation. You’ll want to ensure a smooth transition for your business and your family, as that too will be part of your legacy.

Reference: grbj.com (Grand Rapids Business Journal) (July 19, 2019) “Estate planning for small businesses”

What Should I Keep in Mind in Estate Planning as a Single Parent?

Most estate planning conversation eventually come to center upon the children, regardless of whether they’re still young or adults.  So what should you keep in mind in estate planning as a single parent?

Talk to a qualified estate planning attorney and let him or her know your overall perspective about your children, and what you see as their capabilities and limitations. This information can frequently determine whether you restrict their access to funds and how long those limitations should be in place, in the event you’re no longer around.

Kiplinger’s recent article, “Estate Planning for Single Parents” explains that when one parent dies, the children typically don’t have to leave their home, school and community. However, when a single parent passes, a child may be required to move from that location to live with a relative or ex-spouse.

After looking at your children’s situation with your estate planning attorney to understand your approach to those relationships, you should then discuss your support network to see if there’s anyone who could serve in a formal capacity, if necessary. A big factor in planning decisions is the parent’s relationship with their ex. Most people think that their child’s other parent is the best person to take over full custody, in the event of incapacity or death. For others, this isn’t the case. As a result, their estate plan must be designed with great care. These parents should have a supportive network ready to advocate for the child.

Your estate planning attorney may suggest a trust with a trustee. This fund can accept funds from your estate, a retirement plan, IRA and life insurance settlement. This trust should be set up, so that any court that may be involved will have sound instructions to determine your wishes and expectations for your kids. The trust tells the court who you want to carry out your wishes and who should continue to be an advocate and influence in your child’s life.

Your will should also designate the child’s intended guardian, as well as an alternate, in case the surviving parent can’t serve for some reason. The trust should detail how funds should be spent, as well as the amount of discretion the child may be given and when, and who should be involved in the child’s life.

A trust can be drafted in many ways, but a single parent should discuss all of their questions with an estate planning attorney.

Reference: Kiplinger (May 20, 2019) “Estate Planning for Single Parents”

Why Do Singles Need These Two Estate Planning Tools?

Morningstar’s article, “2 Estate-Planning Tools That Singles Should Consider” explains that a living will, or advance medical directive, is a legal document that details your wishes for life-sustaining treatment. It’s a document that you sign when you’re of sound mind and says you want to be removed from life supporting measures, if you become terminally ill and incapacitated.

Powers of Attorney for healthcare and finances are often overlooked as critical estate planning documents for singles.

If you’re on life support with no chance of getting better, you’d choose to have your family avoid the expense and stress of keeping you alive artificially.

Like a living will, a durable power of attorney for healthcare is a legal document that names an agent to make healthcare decisions for you, if you are unable to make them yourself.

A durable power of attorney for healthcare can provide your instructions in circumstances in which you’re not necessarily terminally ill, but you are incapacitated.

When selecting an agent, find a person you trust enough to act on your behalf when you’re unable. Let this person know exactly how you feel about blood transfusions, organ transplants, disclosure of your medical information and other sensitive topics that may arise, if you’re incapacitated.

A power of attorney eliminates any confusion, especially if this person is someone other than your spouse. Your doctors will know exactly who the decision-maker is among your relatives and friends.

These two documents aren’t all that comprise a fully comprehensive estate plan. Singles should regularly make certain that the beneficiary designations on their checking and retirement accounts are up to date.

You should also consider your life insurance needs, especially if you have children and/or a mortgage.

It is also important to understand that a living will doesn’t address the issues of a will. A will ensures that your property is distributed after your death, in accordance with your wishes. Ask for help from an experienced estate planning attorney.

These two documents—a living will and a durable power of attorney—can help ensure that in a healthcare emergency, any medical and financial decisions made on your behalf are in accordance with what you really want. Speak with to an estate-planning attorney in your state to get definitive answers to your questions.

Reference: Morningstar (April 23, 2019) “2 Estate-Planning Tools That Singles Should Consider”

Common Mistakes with Beneficiary Designations

Questions about beneficiary designations are among the most common we hear from new clients in our law practice.  This is a topic that should be among those discussed by an estate planning attorney during your first meeting.

Many people don’t understand that their will doesn’t control who inherits all of their assets when they pass away. Some of a person’s assets pass by beneficiary designation. That’s accomplished by completing a form with the company that holds the asset and naming who will inherit the asset, upon your death.

Estate Planning Attorney
Assets with a beneficiary designation will not be distributed according to your will.

Kiplinger’s recent article, “Beneficiary Designations: 5 Critical Mistakes to Avoid,” explains that assets including life insurance, annuities and retirement accounts (think 401(k)s, IRAs, 403bs and similar accounts) all pass by beneficiary designation. Many financial companies also let you name beneficiaries on non-retirement accounts, known as TOD (transfer on death) or POD (pay on death) accounts.

Naming a beneficiary can be a good way to make certain your family will get assets directly. However, these beneficiary designations can also cause a host of problems. Make sure that your beneficiary designations are properly completed and given to the financial company, because mistakes can be costly. The article looks at five critical mistakes to avoid when dealing with your beneficiary designations:

  1. Failing to name a beneficiary. Many people never name a beneficiary for their retirement accounts. If you don’t name a beneficiary for retirement accounts, the financial company has it owns rules about where the assets will go after you die. For retirement benefits, if you’re married, your spouse will most likely get the assets. If you’re single, the retirement account will likely be paid to your estate, which has negative tax ramifications and may need to be handled through the costly and time-consuming probate courts. When an estate is the beneficiary of a retirement account, the assets must be paid out of the retirement account within five years of death. This means an acceleration of the deferred income tax—which must be paid earlier, than would have otherwise been necessary.
  2. Failing to consider special circumstances. Not every person should receive an asset directly. These are people like minors, those with specials needs, or people who can’t manage assets or who have creditor issues. Minor children aren’t legally competent, so they can’t claim the assets. A court-appointed conservator will claim and manage the money, until the minor turns 18. Those with special needs who get assets directly, will lose government benefits because once they receive the inheritance directly, they’ll own too many assets to qualify. People with financial issues or creditor problems can lose the asset through mismanagement or debts. Ask your estate planning attorney about creating a trust to be named as the beneficiary.
  3. Designating the wrong beneficiary. Sometimes a person will complete beneficiary designation forms incorrectly. For example, there can be multiple people in a family with similar names, and the beneficiary designation form may not be specific. People also change their names in marriage or divorce. Assets owners can also assume a person’s legal name that can later be incorrect. These mistakes can result in delays in payouts, and in a worst-case scenario of two people with similar names, can mean litigation.
  4. Failing to update your beneficiaries. Since there are life changes (like marriage and divorce for example), make sure your beneficiary designations are updated on a regular basis.
  5. Failing to review beneficiary designations with your estate planning attorney. Beneficiary designations are part of your overall financial and estate plan. Speak with your estate planning attorney to determine the best approach for your specific situation.

Beneficiary designations are designed to make certain that you have the final say over who will get your assets when you die. Take the time to carefully and correctly choose your beneficiaries and periodically review those choices and make the necessary updates to stay in control of your money.

Reference: Kiplinger (April 5, 2019) “Beneficiary Designations: 5 Critical Mistakes to Avoid”

When Should I Review My Estate Plan?

As life changes, you need to periodically review your estate-planning documents and discuss your situation with your estate planning attorney.

WMUR’s recent article, “Money Matters: Reviewing your estate plan,” says a common question is “When should I review my documents?”

Estate Plan Review
You should review your estate plan each time a major life event occurs or every 5 years, whichever comes first.

Every few years is the quick answer, but a change in your life may also necessitate a review. Major life events can be related to a marriage, divorce, or death in the family; a substantial change in estate size; a move to another state and/or acquisition of property in another state; the death of an executor, trustee or guardian; the birth or adoption of children or grandchildren; retirement; and a significant change in health, to name just a handful.

When you conduct your review, consider these questions:

  • Does anyone in your family have special needs?
  • Do you have any children from a previous marriage?
  • Is your choice of executor, guardian, or trustee still okay?
  • Do you have a valid living will, durable power of attorney for health care, or a do-not-resuscitate to manage your health care, if you’re not able to do so?
  • Do you need to plan for Medicaid?
  • Are your beneficiary designations up to date on your retirement plans, annuities, payable-on-death bank accounts and life insurance?
  • Do you have charitable intentions and if so, are they mentioned in your documents?
  • Do you own sufficient life insurance?

In addition, review your digital presence and take the necessary efforts to protect your online information, after your death or if you’re no longer able to act.

It may take a little time, effort, and money to review your documents, but doing so helps ensure your intentions are properly executed. Your planning will help to protect your family during a difficult time.

Reference: WMUR (January 24, 2019) “Money Matters: Reviewing your estate plan”

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